Determinants of liquidity of equity stocks listed at Nairobi stock exchange
Abstract
This paper sought to identify the determinants of liquidity of equity stocks
listed at the Nairobi Stock Exchange. Various conventional liquidity
indicators are constructed for the study period January 1995 to December
2002.
This study found that market capitalization, pnce volatility, market
concentration and number of companies listed contribute significantly to the
liquidity of listed equity stocks at the Nairobi Stock Exchange. The results
of our analysis suggested a strong positive correlation between these
predictor variables and liquidity as measured separately by value traded
ratio and turnover ratio. They explain approximately 90% of the variability
in stock liquidity at the NSE.
We found that turnover ratio increased between 1995 and 2002 with the
highest increase between 2001 and 2002 when improved trading was
reported. This is an indicator of a liquid stock market. Value traded ratio
however is relatively small implying a small market and less liquidity on an
economy-wide basis. Reduced economic activity in the Kenyan economy as
evidenced by the very low (sometimes negative) GDP growth rate has
hampered the growth of the NSE and impacting negatively on its liquidity.
Citation
Masters thesis University of Nairobi (2003)Publisher
University of Nairobi. School of Business Studies